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Real Estate Contracts: Seller’s Disclosure Statement

In any contract for the sale of a good there has to be a full and complete disclosure of the character and nature of the good being sold. This is particularly true when it comes to residential and commercial real estate because of the myriad of issues present with real estate. Therefore, the seller in a real estate transaction in Missouri must communicate to the buyer any deficiencies that are known or reasonably known to the seller. More often that not, a formal Seller’s Disclosure Statement accompanies the real estate contract.

Undoubtedly, most of the lawsuits and litigation that result from real estate contracts flow from the Seller’s Disclosure Statement. The typical fact scenario is as follows: A buys property from B; after the transfer has been completed, A discovers some problems or deficiencies of the property which B did not tell A about.

In such circumstances, A can find relief by filing for intentional misrepresentation, negligent misrepresentation, or filing under the Merchandising Practices Act. Out of procedural concerns, all three legal theories should be included in a Petition.

To prove intentional misrepresentation, there must be a (1) representation; (2) its falsity; (3) its materiality; (4) the speaker’s knowledge of its falsity; (5) the speaker’s intent that it should be acted on by the person and in a manner reasonably calculated; (6) the hearer’s ignorance of the falsity of the representation; (7) the hearer’s reliance on the representation; (8) the hearer’s right to rely thereon; (9) and the hearer’s consequent and proximately caused injury. See Chase v. Manhattan, 220 S.W.3d 758, 765 (Mo. 2005). Obviously, this is very difficult to prove. There has to be something of a “smoking gun” shown to prove that the speaker  had actual knowledge of a representation’s falsity.

Negligent misrepresentation is also difficult to prove. Specifically, it must be shown that the (1) speaker supplied information in the course of his business or because of some other pecuniary interest;  (2) due to speaker’s failure to exercise reasonable care or competence in obtaining or communicating this information, the information was false;  (3) speaker intentionally provided the information for the guidance of a limited group of persons in a particular business transaction;  (4) listener justifiably relied on the information and (5) that as a result of listener’s reliance on the statement, he/she suffered a pecuniary loss. See Colgan v. Washington Realty, 879 S.W.2d 686, 689 (Mo.App.E.D. 1994).

Finally, as discussed in my post on the Missouri Merchandising Practices Act, in Missouri:

[It shall be unlawful to engage in]deception, fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment, suppression, or omission of any material fact in connection with the sale or advertisement of any merchandise in trade or commerce […] in or from the state of Missouri.

The MPA’s broad coverage and liberal construction is generally more favorable to plaintiff’s than intentional and negligent misrepresentation claims.

Because of the complex nature of many of these claims, and the amount of facts that need to be established, one should review real estate contracts with these things in mind. Similarly, if you are a buyer or seller, and believe that you may be involved in one of these claims, it is important to immediately hire competent counsel.

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